9911796707
TMI Blog2019 (6) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... view thereof, we are of the view that penalty proceedings have been initiated, in the present ease, without application of mind thereby rendering the initiation of such proceedings and consequent passing of the penalty order under section 271(1)(c) of the Act to be illegal and bad in law. This view of ours is supported by the decision of CIT vs. Samson Perinchery [ 2017 (1) TMI 1292 - BOMBAY HIGH COURT] wherein the decision of Karnataka High Court in the case of CIT vs. Manjunatha Cotton Ginning Factory [ 2013 (7) TMI 620 - KARNATAKA HIGH COURT] was also considered, AO while issuing notice under section 274 r.w.s 271 of the Act, has not applied his mind. Hence, the penalty proceedings initiated in the present case is without application of mind thereby rendering the initiation of the proceedings and consequent passing of the order u/s 271(1)(c) is bad in law. Hence, we quash the penalty on this count also. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the same under section 271(c) of the Act. 6. The learned CIT(A) has erred in holding that the Revenue had full proof evidence to show that the amount of ₹ 3,99,01,729 was income chargeable to tax in the Appellant's hands in India and that his disclosure in the search proceedings was as a consequence of such information. At the time of search, the search party only had an unsigned/unauthenticated printed piece of paper referred by the search party as 'base note'." 3. Briefly stated facts are that a search operation under section 132 of the Act was conducted on the residence and office premise of the assessee by the Income Tax Department on 29.07.2011. This search was inconsequence to information received by Govt. of India from French Government under Double Tax Avoidance Agreement (DTAA) in exercise of its sovereign power that some Indian nationals and residents have foreign bank accounts in HSBC Bank Geneva, Switzerland. This information was received in the form of a document, referred to as base note, wherein various details of accounts holders such as name, date of birth, place of birth, sex, residential address, profession, nationality along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h copy of bank statement as requested. In this regard, I further wish to state that I had already received a similar letter dated 22.07.2013 from ACIT CC 15 & 16 requesting me to furnish duly signed consent from in prescribed Performa and in reply thereto, vide my letter dated 23.07.2013 addressed to the additional commissioner of Income Tax, I had already explained the nature of the said account with all relevant facts and circumstances and in view thereof had explained my inability to correspond any further with the said bank. A copy of the said letter dated 22.07.2013 together with a copy of my letter dated 4.11.2011 addressed to Dy. Director of Income Tax, Unit IV (4) along with all its annexures attached to my said reply are enclosed herewith." 4. The assessee before AO explained that the said bank account was an escrow account over which assessee did not have any control and the funds in the said bank account was provided by a prospective joint venture personal in lieu of Memorandum Of Understanding (MOU) with Dorchester International Inc. Cyprus. The AO made assessment of the peak balance lying in the bank account for an amount of USD 9,24,293 equivalent to ₹ 4.5 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaration given by the assessee is ₹ 4.5 Cr. which he did not honour and did not intimate DDIT or AO that the declaration works out to ₹ 3.99 Cr. and not 4.5 Cr. Even assuming that the assessee did not intimate the calculation and resultant deduction in declaration to DDIT or AO, that will not debar the assessee in returning the correct income as per the provision of the Act. Anyway the return of income is before the AO and he could have found out any deficiency therein at any time during the assessment proceedings and could have taken corrective action accordingly. The assessee declared an approximate amount of ₹ 4.5 Cr.(around 4.5 Cr. was the word used in statement) which he corrected as per IT Rules and I don't find any fault with the same. Even if the assessee declared 4.5 Cr. without using the word "around", assessee is at liberty to tile return of income as per provisions of Act reducing his declaration to 3.99 Cr. Nothing bars AO from finding fault with assessee's return and assess it correctly. Instead AO is not correct in saying that because assessee declared 4.5 Cr he should return 4.5 Cr even if legally his income works out to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g inaccurate particulars. 9. Further, during assessment proceedings, AO had called for the details of the said bank account vide notices dated 22.07.2013 and 02.01.2014 but the assessee neither furnished any detail nor copies of the HSBC bank account or bank statements. As per the HSBC statements, the sum found at $ 9,24,292 equivalent to ₹ 4.5 cr were earned by the assessee who had not disclosed this in his Return of income. Moreover, the assessee had shown his non-cooperation and lack of compliance to the notices issued as mentioned above as he did not sign the consent waiver form so as to enable the department to gather information from the concerned authorities. Although the assessee has accepted the Foreign Bank account and the sum lying in the account, he did not submit the details of account, did not disclose the manner in which the said amount was earned, neither voluntarily offered for taxation, nor submitted the consent waiver form. Accordingly, the assessee is not entitled to immunity form penalty in the view of the above. 10. Therefore, this is a fit case of filing inaccurate particulars leading to concealed of income amount to 4.5 crores and levy penalty unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee deliberately concealed the foreign bank account and the amount therein at the time of filing of original return and hence assesses is liable for concealment penalty u/s. 271(1)(c) of the Assessee is only trying to propose various theories when he was confronted with hard evidence which clearly establishes that there is deliberate concealment of income. The contention of assessee that the declaration is voluntary cannot be accepted as the assessee declared the amount only when he was left with no escape route on being confronted with hard evidence. 12. To summarize, it can be seen that the assessee has concealed the particulars with respect to taxable income lying in foreign account in the original return of income and chose to come clean only when confronted by the investigation wing. Under the circumstances, I have no hesitation in confirming the action of AO in levying penalty in principle. However, AO is directed to recalculate the concealed income and tax sought to be evaded, keeping in view the assessee's contention with regard to the income declared (of ₹ 65,679/-) in original return and also after reducing the income as per the relief granted in the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed to be in the name of the Assessee and would he operational till such time as the JV got formalised. It was agreed that after formation of JV and allotment of sweat equity shares to the Assessee, the balance of funds in the said bank account shall be transferred to the JV as contribution of Dorchester. Since, money lying in the said bank account was to be held in escrow it was specifically agreed that the Assessee would be holding the money in trust and shall not be entitled to expend or appropriate any part of the said sum without obtaining the prior permission of Dorchester. Assessee would also issue third party instructions to the bank to allow Dorchester full access to the bank account. It was understood that the funds in the bank account could only be used to promote the interest of the proposed JV and for no other purpose. It was also agreed that if the JV was not formalised and established before 28.11.2004, the parties may decide to terminate the MOU if the Assessee had re-located and based himself in the UK, he would be entitled to draw sums as may be agreed between the parties towards the cost of relocation from the funds lying in the escrow bank account. If the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct fulfils the jurisdictional pre-conditions as specified in the said sections and also does it reflect any application or mind. b. Whether it was open to the Commissioner of Income-tax (Appeals) to uphold the levy of penalty for the default of concealment of income when the A.O. had instituted and levied penalty for furnishing of inaccurate particulars of income. C. Whether any penalty could be levied under section 271(1)(c) of the Act in respect of the amount of ₹ 3,99,01,729, when: i. no satisfaction as required by sub-sections (1) and/ or (1B) of section 271 has been recorded by the AO in respect of this amount in the assessment order; ii. the amount of ₹ 3,99,01,729 being rupee equivalent of USD 9,24.293 does not represent the Assessee's income but has been offered for tax in the course of search proceedings in view of the pressure created by the investigating team and the surrounding circumstances and only with a view to buy peace of mind? In any event, the non-offering of income to tax was for good and sufficient reasons and, hence, bonafide; iii. The basis for levy of penalty is contrary to the facts on record, overlooks the relevant facts and is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ltd. Vs. Acit - ITA 206/Mum/2011 9. Kumar Satur Nathani Vs. ACIT - ITA 3942/Mum/2015 10. CIT vs. ACME Associates - 76 Taxmann 242 (HC) On Satisfaction- A jurisdictional Precondition 11. CIT vs. S.V. Angidi Chettiar - 44 ITR 739 (SC) 12. D M Manasvi Vs. CIT (SC)- 86 Taxmann 16 (Bom) 13. CIT vs. Ramcommercial Enterprises Ltd. -167 CTR 0321 (2000) 14. CIT Vs. Racommercial Enterprises Ltd -1 167 CTR 031 (2000) 15. CIT vs. Munish Iron Store (2004) 186 CTR 0321 (2000) 16. Madhushree Gupta Vs. Union of India -183 Taxmann 100 (Delhi) 17. Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT -81 Taxmann 111(SC) 18. Maxopp Investment Ltd. Vs. CIT - 91 Taxmann 162 (Guj) 19. Kirit Dahyabhai Patel Vs. ACIT 80 TAxmann 162 (Guj) 20. CIT Vs. Sun Engineering Works P. Ltd. - 64 Taxmann 442 (SC) The learned CIT- DR, has relied on the following case laws: - 1. Shri Mahesh M. Gandhi Vs. ACIT ITA No. 2976/Mum/2016 2. Airen Metals (P) Ltd. Vs. ACIT (2018) 191 TTJ 609 (Jal) 3. Maharaj Garage & Co. vs. CIT (2017) 85 taxmann.com 86 (Bom) 4. Earthmoving Equipment Service Corporation vs. DCIT (2017) 84 Taxmann.com 51 (Mumbai-Trib) 5. Lake Palace Hotels & Motels Ltd. Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 29.07.2011 that the said account belonged to me. To buy peace of mind, I had offered the peak balance mentioned in the statement of USD 9,24,292 on February 2007 as my income for the assessment year 2007-08 although the funds were not belonging to me and were in the nature of an Escrow account." In view of this admission the learned CIT DR argued that the appeal of assessee is devoid of merits in fact and in law. The scourge of black money in havens of Swiss Bank accounts is well documented and is constantly being pursued with foreign governments, by Central agencies in India and all judicial forums in India too being actively pursued by them. The learned CIT- DR, has relied on the following case laws: - SN Name 17. Shri Mahesh M. Gandhi Vs. ACIT ITA No. 2976/Mum/2016 18. Airen Metals (P) Ltd. Vs. ACIT (2018) 191 TTJ 609 (Jal) 19. Maharaj Garage & Co. vs. CIT (2017) 85 taxmann.com 86 (Bom) 20. Earthmoving Equipment Service Corporation vs. DCIT (2017) 84 Taxmann.com 51 (Mumbai-Trib) 21. Lake Palace Hotels & Motels Ltd. Vs. DCIT (2002) 83 ITD 286 (Jodhpur) 22. CIT vs. Smt. Kaushalya (1994) 75 Taxmann 549 (Bombay) 23. ACIT vs. Dr. Nitin Laxmikant Lad, IN IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group. Despite the search continuing for hours, no incriminating information of any kind was found by the search party. Thereafter, while recording the statement of the Assessee under section 132(4) of the Act, the Assessee was shown photocopy of the bank account statement held in his name with HSBC Bank, Geneva. The assessee made declaration and agreed to offer to tax the peak amount lying in the said escrow bank account and after that the department concluded the search. The assessee before us contended that with a view to stop the mental trauma placed on the Assessee especially because of his and his mother's health as well as the search action at her married daughter's residence and with a view to buy peace of mind, the Assessee agreed to offer the peak amount of USD 9,24,923 to tax (the rupee equivalent of which has been referred to as 4.5 crores in the said statement, while actually as per the exchange rate as prevailing on 31.03.2007 the amount should be ₹ 3,99,01,729). In the said statement, the Assessee has also observed that at that point of time he did not remember the exact source of fund and would try to explain as soon as possible. Thereafter, in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this plea raised the assessee is with respect to the amount of ₹ 3,99,01,729/-, there is no penalty initiated by the AO as is clear from the assessment order. The learned counsel for the assessee stated that the penalty is initiated only with respect to the amount added by the AO and he particularly drew our attention to Para 7.15 of the assessment order, which has already been reproduced in this order above but for the sake of brevity, we are reproducing the same again which reads as under: - "7.15 Accordingly, on the basis of search proceedings and statement of assessee recorded under section 132(4) of the I.T. Act, 1961, it was ₹ 4.5 cr to be disclosed by the assessee, however he has disclosed only 3,99,01,729/- in this return of income, therefore, the difference amount of ₹ 50,98,271(1)(c)/- is added as undisclosed income of assessee for the year under consideration. (addition ₹ 50,98,271/-) Penalty proceedings initiated under section 271(1)(c) of the IT Act for filing inaccurate particulars of income leading to concealment of income." 18. From the above, we noted that the AO has initiated penalty proceedings qua the addition amounting to ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion of the proceeding under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction. There is no evidence on the record that the Income-tax Officer was not satisfied in the course of the assessment proceeding that the firm had concealed its income. The assessment order is dated the 10th of November, 1951, and there is an endorsement at the foot of the assessment order by the Income-tax Officer that action under section 28 had been taken for concealment of income indicating clearly that the Income-tax Officer was satisfied in the course of the assessment proceeding that the firm had concealed its income." Further, this decision of Hon'ble Supreme Court was followed in the decision of D M Manasvi Vs. CIT (1972) 86 ITR 557 (SC), wherein also the same position was reiterated by holding as under: - "The fact that notices were issued subsequent to the making of the assessment orders would not, in our opinion, show, that there was no satisfaction of the Income-tax Officer during the assessment proceedings that the assessee had concealed the particulars of his income or had furnished incorrect particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court has observed that satisfaction in the very nature of thing precedes the issue of such notice and it would not be correct to equate the satisfaction of the AO with the actual issue of notice. It was further observed that the issue of notice is a consequent of the satisfaction of the AO. In the present case, before us there is no satisfaction recorded by the AO with respect to the addition of the amount of ₹ 3,99,01,729/- as the AO has mention with referred to section 271(1)(c) of the Act in the assessment order in the second part of paragraph 7.15 as noted above. A bare perusal of paragraphs 7.12 to 7.15 of the assessment order shows that, therein, the entire emphasis is on the addition of ₹ 50,98,271 because in the statement of the assessee recorded under section 132(4) of the Act the income offered was ₹ 4.50 crores, whereas, additional income offered in the return of income filed pursuant to notice issued under section 153 of the Act was only ₹ 3,99,01,729/-. Hence, we are of the considered view that there is no recording of satisfaction by the AO qua this addition and penalty under section 271(1)(c) will not survive. Hence, we delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice. In view thereof, we are of the view that penalty proceedings have been initiated, in the present ease, without application of mind thereby rendering the initiation of such proceedings and consequent passing of the penalty order under section 271(1)(c) of the Act to be illegal and bad in law. This view of ours is supported by the decision of Hon'ble Bombay High Court in the case of CIT vs. Samson Perinchery [2017] 392 ITR 4 (Bombay), wherein the decision of Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Karnataka) was also considered, same is reproduced as under: - "3 The impugned order of the Tribunal deleted the penalty imposed upon the Respondent Assessee. This by holding that the initiation of penalty under Section 271 (1)(c) of the Act by Assessing Officer was for furnishing inaccurate particulars of income while the order imposing penalty is for concealment of income. The impugned order holds that the concealment of income and furnishing inaccurate particulars of income carry different connotations. Therefore, the Assessing Officer should be clear as to which of the two limbs under which penalty is imposabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njustified. 6. The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in Ashok Pai v/s. CIT 292 ITR 11 [relied upon in Manjunath Cotton & Ginning Factory (supra)] - wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/ permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the Assessee has no notice. 7 Therefore, the issue herein stands concluded in favour of the Respondent Assessee by the decision of the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). Nothing has been shown to us in the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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